Tuesday, January 31, 2012

natural gas in the U.S.

After last Saturday's post on earnings (which was admittedly uninspired) I've been thinking a lot about the overall business outlook with an eye cast towards the U.S. market today. The seasonal nature of the natural gas business in the U.S. is not something most people ever need to know about. For most people, their relationship with gas is that when they turn on their stove or fireplace or flame thrower, it has a supply of gas and they pay for that gas each month. Or perhaps they have a large propane tank and they pay whenever they have the tank refilled. Either way, it's much like other utilities such as electricity and water. You use it, you pay for it, and you don't give much thought to where it comes from. The answer is that it comes from the ground and then, after traveling through a series of tubes that are surprisingly similar to the internet's tubes, it ends up in your house or CNG vehicle or super-villain lair. OK, part of that answer was not strictly accurate. Nor does this address how or why the natural gas business is seasonal.

The answer is in this chart from the U.S. Energy Information Administration. That is a chart of underground natural gas storage in the U.S. During the year, gas production is roughly constant which you can see if you head here and scroll down until you find the Daily Suppy/Demand Graph [sic] with a typo reminiscent of some of my best work. The total supply is roughly flat all year round, but consumption varies widely going through a cycle each year of being low in the summer to high in the winter. To accommodate this elasticity in demand, a good portion of gas produced in the summer is stored underground until it is needed in the winter. This cycle happens every year and gives the underlying industry much of its seasonality.

Each year, the industry watches quite attentively throughout the winter to see what is happening with storage. This year, if you revisit the first chart you will see that current storage is at a very high level for this time of year. While that chart only shows ranged bands for the last five years, storage levels are indeed at record highs and are actually about 20% over last year's levels. This has been brought on by a combination of a very mild winter in much of the country and improved production techniques that have allowed for the faster production of large quantities of gas. Tomorrow (relative to the day this is being posted) is when the previous week's figures will be released and you can see if there's been any closure of that gap now that at least some of the country is starting to experience a proper winter.

The high storage levels have understandably led to weak spot market prices. This is not to say that you as an individual are paying less for gas since you are probably tied to some contract. In fact, from this chart here you will see that residential customers pay more than consumer users who in turn pay more than industrial users and power plants. It's not that you're getting screwed (sort of), but you probably don't have the resources nor consumption levels to make negotiating a better individual price worthwhile. Anyway, the spot prices are down as seen on the second graph down under Spot Prices Graph. In fact, from their peak in mid-2008, spot prices are down to less than a quarter of peak levels.

These weak prices are of course cause for much consternation amongst natural gas drillers and producers. No one really wants to be producing more and being paid less. Some drillers, including heavyweight Chesapeake have signaled that they will shut-in some production and reduce drilling in an attempt to remedy the situation. Whether such moves will achieve their goals are not clear, but they have a very limited number of levers at their disposal to pull (and I cannot help but think that only the Fed with their prime interest rate lever is more limited). This announcement was made two weeks ago, coincidentally on the same day that Halliburton reported relatively strong earnings. Unfortunately for HAL, their own good news was washed over by the concerns surrounding Chesapeake's announcement and HAL's stock price tumbled that day. I'd pretend to be sympathetic, but this is the internet where you're pretty much obligated to be an anonymous jerk. In reality, it will be interesting to see how many other major drillers follow CHK's lead and also curtail U.S. drilling in 2012. That will trickle down to the service companies in a rather significant way and with Halliburton's relatively large exposure to the North American market, this is why they took such a large hit over this news.

What does all this mean for natural gas prices in the future? If there is an attempt to prop up prices through reduced production, how effective will it be and can you do something about it? The short answer is that no one is sure and you as an individual hold little away over market forces. Unless you're super fabulously wealthy. Are you super fabulously wealthy? If you are, I have this Nigerian prince friend who wants to go in for half of a business venture but due to some legal issues you'll have to put up your half of the money first. If you're not super fabulously wealthy and are looking for a somewhat legitimate investment, you could buy into the United States Natural Gas Fund (UNG) which is an ETF that seeks to mirror the spot price of natural gas in the U.S. In a sense, if you look at the five-year chart it's incredibly cheap. You will see a similar trend with another similar ETF called GAZ and that five-year chart which shows a peak in mid-2008 and a brutal slide down since then. The problem with both those funds extends beyond the weakness in natural gas pricing. With the way they try to mirror natural gas prices through the purchase of options contracts, the up- and down-sides are magnified. Additionally, there was a period of time for UNG where it had become such a large fund, that it's purchasing habits of options contracts was starting to have unintended influence on the options market. Personally, and I am not an actual investment adviser*, prices seem close to the bottom, but I'm not sure they will meaningfully rebound for some time. Even with curtailed domestic production, LNG imports are waiting in the wings making supply readily available. I guess what I'm trying to say is that you should buy gold. Lots and lots of gold because it never goes down in value**.

* In addition to not being an investment adviser, I am also not technically a doctor despite my nickname. Nor can I represent you in a court of law. Well, unless you're me since I can represent myself, which in that case would be you, but the odds that you are me and only just now realizing this are staggeringly low.

** Except for 1980 to 2001, so perhaps you'd be interested in some Dutch tulips instead.

Monday, January 30, 2012

tuesdays in turkmenistan: report season

It appears to be report season. Many NGOs have issued various reports in the last few months, either for the end of 2011 or the start of 2012, with rankings and/or assessments on various metrics of the countries of the world. Suffice to say, it's actually quite astounding how poorly most of the world is run. In my quest to find some sources and links via my good friend Jimmy's website Wikipedia, I came across a partial aggregation of some of these survey.

While these are not all the same surveys I'm highlighting below, the table and maps with their color-coding offer a quick visual summary of the world. It's worth noting that the only two countries in the uppermost level in all four of those surveys are New Zealand and Switzerland. Meanwhile, several countries managed to fill out the lower levels in all the surveys and unless I missed any, they are Cuba, Equatorial Guinea, Eritrea, Iran, Libya, Myanmar (Burma), North Korea, Turkmenistan, and Uzbekistan. (Somalia and Sudan were not assessed in all of the surveys, but had they been, both countries would probably be placed in the lowest grouping as well.) Through my own reading, I had already come across the Freedom House and Democracy Index reports. Additionally, I have seen a recent report from Human Rights Watch, another from Reporters Without Borders on press freedom, plus something I already wrote about from Transparency International on corruption.

I want to go over those five I found (again, not fully overlapping with the four listed here) and see where Turkmenistan ranks. (Hint: It did not do as well as New Zealand.)

* The Human Rights Watch released their 2012 World Report earlier this month. This report does not contain a strict ranking of countries, but instead has a six-page summary which states very clearly that Turkmenistan is "one of the world's most repressive countries." You can jump straight to the section on Turkmenistan here without a download.

* Freedom House also released their most recent report last month on 2012 Freedom in the World. Turkmenistan was rated as "Not Free" and received the lowest possible score (7 out of 7) in both political rights and civil liberties measurements.

* Reporters Without Borders also recently released their Press Freedom Index for 2011-2012 and Turkmenistan sneaked in at 177 out of 179. This is hardly surprisingly for a country where about 1% of the people have access to the internet and what is accessible is censored. Additionally, it should tell you something when the national newspaper always has a picture of the president on the front page above the fold every single day.

* The folks at the Economist Intelligence Unit (related to the Economist magazine) put out their Democracy Index for 2011 survey near the end of last year. Turkmenistan was ranked 165 out of 167 countries besting only North Korea and Chad though some countries were not assessed.

* I wrote about this before, but Transparency International released their 2011 Corruption Perceptions Index back in November. Turkmenistan tied with two other countries for 177 out of 182.
In my original entry, I noted that Turkmenistan has been moving the same direction in this survey for the past four years.

With less than two weeks until only the second post-Soviet era presidential election, I watch with eager interest.

the little victories

It may have taken a year, but I was finally reimbursed for an expense claim at work related to my 2010 travel allowance. Lost in the shuffle of a change in managers, a change in location, a change in HR personnel, a change in policies, and a change in status, I have secured my victory.

Sunday, January 29, 2012

presidential election 2 weeks away

No, not the 2012 U.S. presidential election. I'm talking about the 2012 Turkmenistan presidential election, undoubtedly the most democratic event this side of the Warsaw Pact. Several of us were out to dinner the other night (outside the camp!) and there was a notification about the election outside the restaurant. It was a big poster showing all the candidates and had some statement from each of them. Interestingly enough, it was only in Russian, not both Russian and Turkmen. Considering how much the government has pushed for Turkmen in the schools in the last couple years, it's an interesting observation and commentary that most of the older generations know Russian much better than Turkmen. Anyway, two more weeks until the election. I have a sinking suspicion that we will not see a whistle stop train tour pass through Balkanabat. Nor will there be any sports books in Vegas taking wagers on the outcome of this election. That's really too bad since I've got some inside information on who is going to win.

Saturday, January 28, 2012


Schlumberger announced 2011 Q4 earnings last Friday. As always, the good folks at Seeking Alpha have a transcript of the conference call and Q&A session available here. Alternatively, you can download a .mp3 from SLB’s public investor relations page.

You can find any number of articles on what the company and business outlook look like and what’s going on with stock performance. Personally, I tend to use Yahoo! Finance as my starting point when looking for how or why SLB is in the news. Given that, I’m not going to dwell much on the company performance (not bankrupt like some) or the business outlook (which looks like this). Instead, it’s all about the Q&A session with this most recent one being the first without former CEO and still chairman of the board (until April) Andrew Gould being an active participant.

For several years now, I have been reading the transcripts and listening to the call recordings. I often let the Q&A session play in the background on my computer while I work. Gould was (and still is) very well-respected within the industry having helmed Schlumberger for the previous eight years and overseeing its rise back to industry prominence. For many years, it was him and his dulcet voice during the Q&A sessions after the earnings announcements. He has now moved on to join the Board of Directors at BG Group and is tagged to be their next chairman sometime after he steps down as chairman of Schlumberger in April. Anyway, I typically found his answers quite illuminating both of the direction of the company as well as the overall industry. Combined with how well spoken he generally was, listening to him field questions was rather entertaining in a certain educational sense.

On this most recent conference call, I found the Q&A session with the new CEO Paal Kibsgaard less interesting than previous calls. It was partly to do with the questions themselves which I generally thought were not all that interesting or pointed. And there was nothing wrong with any of the answers either. Nonetheless, the call failed to spark the same level of eager interest from me that it used to engender. The reasons are most likely three-fold. First, the new CEO is simply not as well spoken as Gould. There are a couple different reasons for why this could be, but regardless of the specifics, I expect this to get better with time. The second reason is that 2012 is looking like a relatively straightforward year. There is always uncertainty in this business, but this could be the most predictable year in the past five or six. Thus, questions and subsequent answers about the business outlook didn’t have much meat to them. Combined with the first point, I also think the Kibsgaard erred to the side of caution and preferred to give less, rather than more information. This left some of the answers feeling a bit bland, but it’s also easier to put out a press release with more information than trying to unsay something. The third, and probably most significant reason that the Q&A session lacked punch, is that I know more than I used to in the past. My personal understanding of the business is much broader than it was even two years ago. This has been motivated by a mix of more time working, being overseas and seeing different operating environments, and my current and previous locations which have given me better insight into the other segments and product lines outside of my own.

We’ll see what happens three months from now when the next call comes around. Perhaps it will be more exciting, though that’s not necessarily a good thing.


It is raining today. Rain, not snow. Given that this is a desert, rain is always a welcome sight to me. It helps break the monotony of the place and it also means that it won’t be miserably cold for at least the next day or two. That is all.

Tuesday, January 24, 2012

tuesdays in turkmenistan: back in the box

Being in Turkmenistan is much like being in a box. Of course, one could argue that anywhere on the planet, or even the universe, is like being in a box, just much larger. Still, while Turkmenistan is a good-sized box in it's own right, it is quite a bit more boxy than most other places. It has some straight borders, is mostly empty, and much if it tastes like cardboard. Ok, perhaps it's not strictly a box, but if it was, then it would be a very plain one and the problem with plain boxes, aside from being boring, is that they are inherently uninspiring. It is difficult to feel particularly motivated when most of your surroundings are rather lifeless and devoid of interest.

While I am here I end up spending a lot of time by myself. Being able to keep my own counsel has been a necessary part of work since I first started. In the camp, while I'm in close physical proximity to many people, keeping my own company is very important to my sanity. Also, since smoking is allowed in all the common recreation areas, I usually dislike spending time there. The smoking thing is very important to me and it has really brought out how much I positively detest smoking and view it as something with no possible redeeming social benefit. Smoking is one of the few absolute deal breakers I have when it comes to relationships and anyone else I plan to hang around with any significant amount of time. In the end, my time alone is quite significant and when in my cargo container-esque room, it certainly holds the potential to be rather depressing if you don't know how to be good at being alone. Perhaps that sounds odd, but some people seem generally terrible at being by themselves. There's a difference between being bored and needing/seeking continuous contact with people. You simply have to be okay enough with yourself to spend lots of time with just yourself. It sounds simple enough, but I feel like it's a skill some people do not have.

Anyway, this box here. It's also becoming quite the sandbox to borrow a term from video game parlance. Turkmenistan is in its own world here. Perhaps it's just the fact some more recent reports have been published that cast a skeptical eye (to be very polite) on the situation here, but Turkmenistan feels increasingly like some sort of Hotel California for locals. (I do feel like I can check out from here.) When I have time, perhaps by next Tuesday, I want to have gathered up all the recent reports and try to explain what I see with my own eyes. Plus, the election is soon and that will surely be interesting, in a certain sense of the word.

Also, for what it's worth, I'm still in Ashgabat. Today's flight to Balkanabat was cancelled due to snow in Balkanabat. Something like 2-3cm was on the ground so apparently the airport there did it's best Madagascar impression and shut down everything.

Sunday, January 22, 2012

frankfurt airport

Back in my home away from home (Ashgabat staff house) away from home (Balkanabat camp) away from home (California, more or less), I'm in Frankfurt airport, where I might spend more time here, and certainly see more people than anywhere else I regularly go. I don't have much to say but have a few minutes to spend watching a giant circular BAYER sign slowly rotate. If you happen to pass through terminal B here, you'll know exactly which sign I am talking about.

I always find it most curious just how many Lufthansa 747s I am able to see each time I am here. Without trying particularly hard, I already saw seven distinctly different 747s which is quite a few since they only have about 20 in their entire fleet. One time, I definitively saw nine and it might have been ten, but as one plane had just landed and I might have later double-counted it on the taxiway. I just sort of figured that at any given moment, since they are such long-haul planes, most of them would be in the air or at another airport. When you think about how many different planes are required to continuously service a daily route like FRA-SFO, then it just seems peculiar how many happen to be here. However, it could just be a matter of timing during the day and I happen to be here during the few hours that many are being turned around at the same time.

Anyway, time to go. By the time I land in "the best -stan" (which would be an excellent tourism slogan) and get to the staff house in Ashgabat, the Patriots-Ravens game should be nearly over and Niners-Giants will be a couple hours from starting. Alas, I am quite certain that I will not find the game on television. Plus, since it will be 2AM, I'll need to sleep anyway.

Saturday, January 21, 2012

tuesdays not in turkmenistan: saturday edition

What can I say? My schedule and regularity pretty much go out the window when I'm back Stateside and trying to cram a couple months worth of social life into a couple weeks. Also, it's also very tiring when I'm at work and I mostly just want to rest and rest and then rest some more when I am back.

For all practical purposes, I was away for eight weeks before coming back right before New Year's Eve. I am increasingly understanding of the 7x3 rotation and why seven weeks is more than enough time in a camp. Amusingly enough, I'm going to try and stretch my coming rotation out as much as possible, but I think it will still result in missing some social engagements in April/May. However, we've had some personnel changes and I'm not sure what the schedule is going to look like now and how much accommodation is possible. My time in Turkmenistan might actually be easier to bear if I was still working in the field and getting out of the office more. Instead, it's room, work, room, work, repeat, etc. Additionally, there's no such thing as a properly staffed location in this company. Either we have too many and need to fire or transfer people or we have too few and don't necessarily need to hire, but instead need to get more out of the people we currently have. Combined with the relatively high-stress nature of the business where the omnipresent sense of time equating to money (except for the state companies!), the feeling that the next mistake could very well be your last with your employer, and that you're living in what is essentially a metal box for seven weeks can really drive you a bit batty. On some level, you have to, well, I don't want to say "not care", but you do need to disengage and draw some boundaries.

Living at the camp, the lines that most people think of when it comes to work/life balance and separation really don't exist. Everything there is essentially work and that constant grind is what is so taxing. It is also ultimately unhelpful and counter-productive if some boundaries are not staked out. I can tell when I'm not productive. More importantly, I can tell when fatigue is setting in because fatigue largely transmutes itself into apathy with me. But the boundary drawing is left to everyone to figure out on their own and it's admittedly something I'm pretty terrible at and for those who have had to put up with that fact, I'm sorry. Being back this time, and partially pulled along by some work computer issues, helped me at least put a first stake in figuring out those boundaries.

This time around, I did relatively little work at home. One could argue I did almost no work, which is sort of the point of days off. I replied to just enough e-mails and filled out enough forms and spreadsheets to avert what I hope are any serious issues. It felt good to not work, but the creeping worry is always there since regardless of how things are supposed to be, it's my mess to deal with when I get back so one eye is always trying to keep a lookout. Still, I stayed busy with plenty that was not work this time around and I'm very happy about that. I had something to do or someone to see almost every day I was in town and that's a good sign. I want to keep staking out some more, well, stakes, until I have boundaries setup between work and everything else. Let's see how that goes while I'm away, which starts in a couple hours. Until then, I'm out until probably late March or early April.

Tuesday, January 10, 2012

tuesdays not in turkmenistan: explaining the place

People often ask me what it's like in Turkmenistan. I was also asked the same questions about Congo and Gabon, though I was back in the U.S. less often so I was also asked questions about those places less often. It's perfectly reasonably to be asked about Turkmensitan. After all, most people have never been, will never go, and never hear about it in the news. I offer what I am sure are woefully inadequate answers describing terrain (mostly desert), government (autocratic), language (Russian, Turkmen), religion (moderate Islam), and economy (oil & gas revenue) while never being able to quite convey the essence of the place. People also often ask about the food, probably because the times I am usually around other people are for meals. The food is food.

In all fairness, I think my answers are not so bad. I offer you up this challenge. How would you describe your home i 4-5 sentences? For starters, how would you even conclude what constitutes your home? The city, state, country, region, time zone, county? Now imagine describing the essence of that place (or all of them) to someone totally unfamiliar with all aspects of that place. It's really hard, isn't it? If you think it is easy, then you are probably leaving out hugely important pieces of information or have made lots of assumptions about how similar your home is to the home of the stranger who wants to know about yours. You can describe the who and the what and the where. But the real essence of a place is in the why. That's where the cultural and historical context of a place and how it come to be the way it is are found. And that why is also what is so hard to properly understand while you visit and live in places that are not your home.

Tuesday, January 03, 2012

tuesdays not in turkmenistan: on hiatus

I just got back into California a couple days ago and I'm just too tired and a bit burned out to blog. Be back next week.